Question 1 Assume that nominal income increases by 5% and the price level increases by 3%, which of the following is true? Real GDP must have decreased. The impact on real GDP is indeterminate. The percentage increase in real GDP must exceed the percentage increase in the price level. Real GDP increased by approximately 2%. O if the price level increased by 3%, nominal GDP must increase by less than 3%, not by 5%. Question 2 The basic money supply, M1, is defined as the value of O currency in circulation plus bank reserves O demand deposits plus savings accounts currency in circulation plus existing government bonds currency in circulation plus demand deposits currency in circulation, plus demand deposits, plus saving accountsQuestion 3 If it is assumed that the nominal interest rate is 8% and the expected rate of inflation is 3%, what is the expected real interest rate? O-5% O 3% Q 5% O 8% 11% Question 4 Which of the following is true about the supply of loanable funds and interest rates when the government borrows money to finance its budget deficit? The supply of loanable funds and the interest rate both increase. The supply of loanable funds decreases, and the interest rate increases. The supply of loanable funds decreases, but the interest rate remains unchanged. The supply of loanable funds increases, and the interest rate decreases. The supply of loanable funds remains unchanged, and the interest rate increases.Question 5 Which of the following combinations of monetary policy is the most expansionary? O The central bank's selling bonds and lowering the discount rate O The central bank's buying bonds and Congress increasing government spending O Congress lowering taxes and increasing government spending O The central bank's lowering the required reserve ratio and lowering the discount rate O The central bank buying bonds and increasing the required reserve ratio Question 6 Which statement explains the shape of the long-run aggregate supply curve (LRAS)? O It is vertical and parallel to the y-axis because in the long run, the total output is not dependent on price level. O It is horizontal and parallel to the X-axis because in the long run, the total output is dependent on price level. O it is upward sloping because it is affected by the price level. it is a downward-sloping curve because it is affected by the price level. It is horizontal until the point where the price is flexible.Question 7 Use the following graph to answer the question that follows. Price Level SRAS X 0 Real GDP Which of the following represents the relationship between inflation and unemployment in the short run? O Changes in the price levels do not motivate producers to change their production level. Higher price levels motivate producers to produce less, and that represents the inverse relationship between inflation and unemployment. Higher price levels motivate producers to produce more, and that represents the inverse relationship between inflation and unemployment. O Lower price levels motivate producers to produce less, and that represents the direct relationship between inflation and unemployment. Lower price levels motivate producers to produce more, and that represents the inverse relationship between inflation and unemployment.Question 8 What is the maximum amount of possible loans that banks are able to give out from any deposit? O The excess reserve divided by the monetary base O The excess reserve multiplied by the monetary base O The excess reserve multiplied by the money multiplier The fractional reserve divided by the money supply O The fractional reserve multiplied by money multiplier Question 9 Which is the most expansionary combination of fiscal policies? O Increasing taxes and increasing government spending Decreasing government transfer payments and increasing government spending O Decreasing taxes and increasing government spending Decreasing government spending and increasing the money supply O Decreasing the money supply and increasing taxesQuestion 10 Which of the following statements about the short-run aggregate supply curve (SRAS) is true? O A higher price level will increase aggregate supply, shifting the SRAS to the right. O An increase in the wage rate will increase aggregate supply, shifting the SRAS to the right. OA lower price level will reduce the aggregate quantity of output supplied in the short run. A decrease in business taxes will reduce aggregate supply, shifting the SRAS to the left. A horizontal SRAS shows that higher output prices are needed to increase output in the short run. Question 11 Which among the following is a supply-side fiscal policy for economic growth? Devaluation of currency Increasing tax rates O Increase in the privatization within the country Decreasing the money supply in the economy Monetary policies like cutting interest ratesQuestion 12 Achieving the maximum increase in the money supply, for a given money multiplier, is slowed when O the general public redeposits all cash proceeds of expenditures from loans O the central bank lowers the discount rate O the legislature increases government spending O the banks have financially strong customers seeking loans O the banks tend to lend slowly, holding excess reserves Question 13 Which of the following statements explains the relation between the real interest rate and the international financial capital flow? The decrease in domestic real interest rate relative to the world interest rates increases the international financial capital inflow in the economy from the rest of the world. The decrease in the financial capital inflow is primarily due to increases in borrowings from the rest of the world. The increase in domestic real interest rate relative to the world interest rates decreases the international financial capital inflow in the economy from the rest of the world. The increase in the domestic real interest rate relative to world interest rates increases the international financial capital inflow in the economy from the rest of the world. There is no relationship between the real interest rate and the capital financial flow in the economy.Question 14 Use the graph to answer the question that follows. SRAS Price Level PL AD Yo Y Real GDP Assume that the economy is in a short-run equilibrium as shown on the accompanying graph. Without government intervention, what adjustment over time can be expected? The wage rate should fall, short-run aggregate supply will increase, and the economy will adjust to full employment. The wage rate should increase, short-run aggregate supply will decrease, and the economy will adjust to full employment. Government spending will decrease, aggregate demand will decrease, and cyclical unemployment will increase. Taxes will decrease, aggregate demand will decrease, and the economy will adjust to full employment. Long-run aggregate supply will decrease until it equals the current aggregate demand and short- run aggregate supply.Question 15 Use the graph to answer the question that follows. S Price ($) D' D Quantity The graph for a competitive output market shows demand shifting from D to D' and supply shifting from S to S'. Which pair of events is consistent with these two changes? OA decrease in the number of buyers and an increase in the price of a key input, like labor An increase in the price of a substitute good (in consumption) and an increase in the price of a key input, like labor An increase in average income (with a normal good) and technological progress producing the good An increase in both the number of buyers and the number of sellers An increase in the price of a complement good (in consumption) and a decrease in the number of sellersQuestion 16 Use the graph to answer the question that follows. Real GDP Actual real GDP Potential real GDP T5 Time The government of Country 'X' is operating at point 'C' in T3. Which of the following events would move the economy from point 'C' to 'D"? Decrease in import O Decrease in interest rates Increase in money supply O Rise in aggregate demand Sharp rise in unemployment rateQuestion 17 If an economy is experiencing equilibrium in the loanable funds market with an 8% interest rate, what are the consequences if the interest rate falls to 6%? O At lower interest rates, households will be willing to save more, and firms will be willing to invest more. O At lower interest rates, households will be willing to save more, and firms will be willing to invest less O At lower interest rates, households will be willing to spend less, and firms will not be willing to invest more. O At lower interest rates, households will be willing to spend less, and firms will be willing to invest more. O At lower interest rates, households will be willing to spend more, and firms will be willing to invest more. Question 18 Assume that the money market is in equilibrium, with a nominal interest rate of ro. Following a decrease in aggregate demand within the economy, which of the following should occur? O The money demand curve will shift right (increase), and the interest rate will decrease. The money supply curve will shift left (decrease), and the interest rate will increase. O The money demand curve will shift left (decrease), and the interest rate will decrease. There will be an increase in the equilibrium quantity of money, with an indeterminate impact on the nominal interest rate. The money demand will increase, the money supply will decrease, and the interest rate will increase.Question 19 When the central bank sets or determines the money supply, which of the following is true? O The money supply is drawn as a vertical line, independent of the nominal rate of interest. The money demand is no longer influenced by the nominal rate of interest. The money demand curve becomes perfectly horizontal at the interest rate set by the central bank. The money supply exceeds the money demand at equilibrium, if banks hold excess reserves. The money supply only determines the interest rate and not the quantity of money. Question 20 Which of the following is the result of an economy implementing a contractionary fiscal policy? O The aggregate demand curve will shift to the left. The aggregate demand curve will shift to the right. The economy will experience a crowding-out effect. The government will increase its spending on education. The tax rates in the economy will decrease.Question 21 A much larger number of international students from Europe are planning to study in the United States. Which of the following statements concerning foreign exchange is true? The demand for euros will increase. The demand for U.S. dollars will increase. The money spent in travel and educational expenses does not affect the demand or supply of foreign exchange in the foreign exchange market. O The supply of euros will decrease. The supply of U.S. dollars will decrease. Question 22 Which one of the following cases is true if there is an increase in the demand for exports from the United States? Increase in the equilibrium exchange rate Shift in the quantity of dollars supplied to the right Decrease in equilibrium exchange rate Exchange rate is unaffected Shift in the quantity demanded for foreign currency to the leftQuestion 23 Which of the following is considered an automatic stabilizer? O A discretionary increase in government spending OA decrease in the wage rate when there is cyclical unemployment O An increase in income tax rates to fight inflation O Unemployed workers collect unemployment insurance benefits when they become unemployed A simultaneous increase in government spending and taxes to fight unemployment with a balanced budget Question 24 How is economic growth best described or summarized? O An increase in the current level of real GDP A decrease in the unemployment rate An increase in the long-run aggregate supply curve An inward (or leftward) shift of the Phillips curve An inward shift of the production possibilities frontierQuestion 25 Suppose Firm A can manufacture 100 pens and 20 umbrellas with a unit of labor, and Firm B can manufacture 80 pens and 10 umbrellas with a unit of labor. Which one of the following statements is true? O Firm A has the comparative advantage in both pen and umbrella production. O Firm B has an absolute advantage in umbrella production. O Firm A has a comparative advantage only in pen production. O Firm B has a comparative advantage in pen production. Neither firm has a comparative advantage in either pen or umbrella production. Question 26 Assume that the equilibrium price per smartphone in the market of a country was initially $525. If the government of the country is thinking of helping manufacturers to grow by providing subsidies, then how will this action affect the equilibrium price and quantity demand of smartphones in the country? O The demand for smartphones will increase, and the price of smartphones will decrease. The demand for smartphones will be unaffected, and the price of smartphones will increase. The demand for smartphones will increase, and the price of smartphones will be unaffected. The demand for smartphones will decrease, and the price of smartphones will also decrease. O The demand for smartphone will decrease, and the price for smartphones will be unaffected.Question 27 Why do economists state the unemployment rate tends to underestimate the inadequacy of labor market opportunities? O The unemployment rate does not include the discouraged workers who have ceased looking for a job The unemployment rate does not include those who retired before reaching 65 years of age. O The unemployment rate is not adjusted downward for people who are working overtime. O The unemployment rate does not include full-time students who have no job. The unemployment rate does not include senior citizens who have no work but are seeking employment. Question 28 Which of the following is true, with respect to the relationship between the production possibility curve (PPC) and the long-run aggregate supply curve (LRAS)? O The LRAS is negatively related to the production possibility curve. The LRAS is vertical, whereas the production possibility curve is concave to the origin; hence there is no such relationship The LRAS represents a point on an economy's PPC. The PPC is a downward sloping curve, therefore, a single point on this curve represents the economy's output in the short run. The PPC represents the minimum output an economy produces with scarce resources.Question 29 Which of the following best explains the difference between a government debt and a budget deficit? O A deficit occurs when government spending exceeds tax revenue in a financial year, and the government debt is the deficit accumulated over many years. A deficit occurs when government spending exceeds tax revenue in a financial year, and the government debt is the deficit accumulated at the end of the year. OA deficit occurs when government spending exceeds transfer payments in a financial year, and the government debt is the deficit accumulated over many years. OA deficit occurs when government spending is less than tax revenue in a financial year, and the government debt is the deficit accumulated over many years. A deficit occurs when tax revenue is less than transfer payments in a financial year, and the government debt is the deficit accumulated at the end of the year. Question 30 If the marginal propensity to save is 0.4 (or 40%) and the government plans to spend $4,000 in the economy, then what will be the change in national income as a whole? The national income will increase by $10,000. The national income will increase by $25,000. The national income will decrease by $10,000. The national income will decrease by $25,000. The national income will remain constant